Financial Times: IEA says world must turn away from oil
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By Kevin Morrison and Javier Blas in London
>Published: March 11 2005 12:17
The rapid rise in global oil demand should lead the industrialised world to promote alternatives to oil as well as energy conservation, the International Energy Agency said on Friday.
The warning, from the West's energy policy adviser, signals a sharp turnaround by the IEA, which has previously tried to cool oil markets by blaming prices on speculators and short-term supply disruptions.
“The reality is that oil consumption has caught up with installed crude and refining capacity,” the Paris-based agency said. “If supply continues to struggle to keep up, more policy attention may come to be directed at oil demand intensity in our economies and alternatives.” The agency's view carries special weight because it was created in the mid-1970s after the Arab oil embargo to advise consuming governments about energy security and how to conserve oil so as to protect their economies from fluctuations in its price.
Any revival of talk about energy efficiency is likely to alarm the Organisation of Petroleum Exporting Countries, which meets next week in the Iranian city of Isfahan.
The IEA's warning comes at a time when prices are close to their record nominal levels, a signal that high prices are not denting consumption. Brent, Europe's benchmark oil price, hit a record high of $54.30 a barrel this week. On Friday Brent was trading at $53.25 a barrel, up 59 cents on the day. US benchmark crude prices were 66 cents higher at $54.20.
In its March report, the IEA raised its 2005 global oil demand growth forecast by 290,000 barrels a day, to 1.81m b/d, because of higher demand in the US and China, the world's two largest oil consumers. The higher forecast gave average daily consumption for 2005 of 84.3m b/d.
* Lack of new refining capacity hurts oil supplies
Oil companies' failure to add new refining capacity to keep up with global demand for petroleum products is exacerbating already tight oil supply conditions and fuelling the rise in oil prices to nominal record highs.
At the same time, the world's spare refining capacity has shrunk as demand for oil products has grown faster than the addition of new capacity.
In the lead-up to Friday's comments, the IEA has privately raised the question of energy efficiency with consuming governments. “We will try to drive the attention of governments to energy efficiency,” said an agency official.
The agency also plans to release a report next month entitled Saving Oil In A Hurry, which will cover among other issues the topic of energy efficiency in consuming nations.
Energy analysts said a new drive on energy efficiency could be difficult because most of the increase in oil consumption is in transportation, where there are few economic alternatives.
In the 1970s and 1980s the focus on energy efficiency was on the industrial sector, which contributes a small proportion of new oil demand increase.
The IEA's emphasis on energy efficiency was endorsed by President George W. Bush, who on Friday said conservation was a key part of his proposed energy bill.
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